Singapore Air Profit Misses Estimates on Passenger Yields

A Singapore Airlines Ltd. Airbus SAS A380 aircraft prepares to land at Changi Airport in Singapore. The airline carried 4.69 million passengers between October and December, compared with 4.36 million a year earlier. Photographer: Munshi Ahmed/Bloomberg

Net income rose 5.4 percent to S$142.5 million ($115
million) in the three months ended December, the airline said in
a statement yesterday, missing the S$161 million average of four
analysts’ estimates compiled by Bloomberg.

Singapore Air shares fell to the lowest level in a week
after saying yield from carrying passengers dropped 5.8 percent
in the third quarter, trimming gains from selling more tickets.
Chief Executive Officer Goh Choon Phong, 49, upgraded business-class cabins, sold a stake in Virgin Atlantic Airways Ltd. last
year, and started operating a new budget carrier Scoot Pte as
competition with Middle East carriers such as Emirates and low-fare airlines increases.

“Disappointing results reinforce our conviction thesis
that Singapore Air is losing its allure as a result of the shift
in power dynamics,” Citigroup Inc. analyst Rigan Wong said in a
note yesterday. “Yield deterioration is our biggest concern.”

Passenger yield, the average price a traveler pays to fly
one kilometer, fell to 11.4 Singapore cents from 12.1 cents a
year earlier, Singapore Air said in the statement. Yields from
carrying cargo dropped to 33.5 cents from 34.7 cents a year
earlier, the company said in the statement.

Revenue fell 0.4 percent to S$3.86 billion.

Passenger Numbers

The shares dropped 0.7 percent to S$11.07, the lowest price
since Jan. 31, according to data compiled by Bloomberg.

The airline carried 4.69 million passengers between October
and December, compared with 4.36 million a year earlier,
according to the company’s monthly filings to the Singapore
stock exchange. The carrier filled an average 79.3 percent of
its seats in the quarter, compared with 77.2 percent a year ago.

“Loads and yields of both passenger and cargo business are
expected to remain under pressure, while the price of jet fuel
continues to be at a historical high,” Singapore Air said in
the statement. “The depreciation of revenue-generating
currencies against the Singapore dollar poses yet another
challenge.”

The average price of jet fuel rose 1.7 percent in the
October-December period to $126.91 per barrel, according to data
compiled by Bloomberg.

New Planes

Premium-ticket prices between Asia and the U.S. averaged
$5,859 in December, the lowest level since 2009, according to
data compiled by Bloomberg. Wall Street’s cost cuts and
dismissals have helped erase more than 300,000 financial-industry jobs in the past two years while companies have trimmed
their travel budgets.

Cathay Pacific Airways Ltd., which reports earnings next
month in Hong Kong, said in January that ticket sales at the
front of the cabin fell short of its expectations in December.

Global air passenger traffic grew 5.3 percent last year,
boosted by the expansion of Middle Eastern carriers and demand
from markets in Latin America and Africa, the International Air
Transport Association said on Jan. 31. Cargo demand fell 1.5
percent in 2012. Passenger traffic may grow 4.5 percent in 2013,
with cargo markets projected to increase 1.4 percent, IATA said.

Virgin, Tiger

“The impact of the promotional fares on both economy-class
travel and emptying out of the front of the airplane has had a
worse impact than anticipated,” said Timothy Ross, an analyst
at Credit Suisse AG. “Banks and multinational firms all need to
start feeling like they are earning money before they change
their travel policies.”

Singapore Air faces increased competition as Qantas Airways
Ltd., Australia’s biggest, formed an alliance last year with
Emirates, the Middle East’s largest airline. The tie-up has
received provisional approval from Australia’s antitrust
regulator in December.

To compete, Singapore Air last year agreed to buy a 10
percent stake in Virgin Australia Holdings Ltd. for A$105
million ($108 million). Virgin Australia took control of the
Australian arm of Tiger Airways Holdings Ltd.

Singapore Air is the largest investor in Tiger, a short-haul low-fare airline that takes on AirAsia Bhd., Lion Mentari
Airlines PT and a dozen other budget carriers that fly in the
Southeast Asian region.

Scoot

Last year, Scoot, a medium-haul budget airline fully owned
by Singapore Air, started flying with Boeing 777 aircraft.
Singapore Air transferred its orders for the Boeing 787
Dreamliners to Scoot.

Singapore Air in December agreed to sell its 49 percent
stake in Virgin Atlantic to Delta Air Lines Inc. for $360
million. The carrier had earlier written down its investment in
the U.K. carrier controlled by billionaire Richard Branson. The
deal is expected to close in the fourth quarter.

To cut costs, the airline is offering captains voluntary
no-pay leave. The company has a “temporary” surplus of
captains, spokesman Nicholas Ionides said last month. Singapore
Air last year offered first officers unpaid voluntary leave. The
airline last month said it will release 76 pilots that were
employed on fixed-terms by June 30 before their contracts expire.